Tortoise MLP Fund, Inc.

Transcription

1 Tortoise MLP Fund, Inc. SM Yield Growth Quality rd Quarter Report August 31, 2014 Steady Wins

2 C o m p a n y a t a G l a n c e Tortoise MLP Fund, Inc. (NYSE: NTG) offers a closed-end fund strategy of investing in energy infrastructure MLPs and their affiliates, with an emphasis on natural gas infrastructure MLPs. Total Assets (dollars in millions) Investment Focus NTG seeks to provide stockholders with a high level of total return with an emphasis on current distributions. The fund focuses primarily on midstream energy infrastructure MLPs that engage in the business of transporting, gathering and processing and storing natural gas and natural gas liquids (NGLs). Under normal circumstances, we invest at least 80 percent of NTG s total assets in MLP equity securities with at least 70 percent of total assets in natural gas infrastructure MLP equity securities. Of the total assets in the fund, we may invest as much as 50 percent in restricted securities, primarily through direct investments in securities of listed companies. We do not invest in privately held companies and limit our investment in any one security to 10 percent About Energy Infrastructure Master Limited Partnerships MLPs are limited partnerships whose units trade on public exchanges such as the New York Stock Exchange (NYSE), the NYSE Alternext US and NASDAQ. Buying MLP units makes an investor a limited partner in the MLP. There are currently more than 100 MLPs in the market in industries related to energy and natural resources. We primarily invest in MLPs and their affiliates in the energy infrastructure sector, with an emphasis on natural gas infrastructure MLPs. Energy infrastructure MLPs are engaged in the transportation, storage and processing of crude oil, natural gas and refined products from production points to the end users. Natural gas infrastructure MLPs are companies in which over 50 percent of their revenue, cash flow or assets are related to the operation of natural gas or NGL infrastructure assets. Our investments are primarily in midstream (mostly pipeline) operations, which typically produce steady cash flows with less exposure to commodity prices than many alternative investments in the broader energy industry. With the growth potential of this sector, along with our disciplined investment approach, we endeavor to generate a predictable and increasing distribution stream for our investors. Q Q1 Q Q3 Common Distributions (in dollars) An NTG Investment Versus a Direct Investment in MLPs We provide our stockholders an alternative to investing directly in MLPs and their affiliates. A direct MLP investment potentially offers an attractive distribution with a significant portion treated as return of capital, and a historically low correlation to returns on stocks and bonds. However, the tax characteristics of a direct MLP investment are generally undesirable for tax-exempt investors such as retirement plans. We are structured as a C Corporation accruing federal and state income taxes based on taxable earnings and profits. Because of this innovative structure, pioneered by Tortoise Capital Advisors, institutions and retirement accounts are able to join individual stockholders as investors in MLPs Additional features include: n The opportunity for tax deferred distributions and distribution growth; n Simplified tax reporting (investors receive a single 1099) compared to directly owning MLP units; Q4 Q1 Q2 Q3 n Appropriate for retirement and other tax exempt accounts; n Potential diversification of overall investment portfolio; and n Professional securities selection and active management by an experienced adviser. Closing Stock Price (in dollars) Allocation of Portfolio Assets August 31, 2014 (Unaudited) (Percentages based on total investment portfolio) Natural Gas/Natural Gas Liquids Pipelines 51.6 Crude/Refined Products Pipelines 25.0 Natural Gas Gathering/Processing 23.4 Q4 Q1 Q2 Q3 x b Tortoise MLP Fund, Inc.

3 September 29, 2014 D e a r F e l l o w S t o c k h o l d e r s, The third fiscal quarter ending Aug. 31, 2014 was an upbeat one for midstream MLPs, including natural gas infrastructure MLPs, a strategic focus of NTG. Their success during the quarter was driven by the continued and critical need for infrastructure build-out to transport the escalating production out of North American shales, as well as proposed merger and acquisition activity. Broader market performance also was strong during the third fiscal quarter, despite the intensifying and increasingly complex conflict in the Middle East. Interest rates remained low, although in July Federal Reserve Chairwoman Janet Yellen, testifying before the Senate Banking Committee, said that the Fed may need to raise interest rates sooner than expected. Also during the quarter, a steady stream of upbeat economic data reflected economic growth. For the three- and nine-month periods ending Aug. 31, 2014, the S&P 500 Index returned 4.7 percent and 12.7 percent, respectively. Master Limited Partnership Sector Review and Outlook MLPs once again outperformed the broader market, with the Tortoise MLP Index posting 12.0 percent and 27.1 percent total returns for the three- and nine-month periods ending Aug. 31, 2014, respectively. Midstream MLPs slightly outperformed upstream MLPs during the quarter, driven largely by the continued need for greater pipeline takeaway capacity. The Tortoise Midstream MLP Index gained 12.9 percent for the quarter while the Tortoise Upstream MLP Index returned 10.1 percent. Midstream MLPs handily outperformed their upstream counterparts fiscal year to date, with the midstream index returning 28.8 percent for the nine months ending Aug. 31, 2014, compared to the upstream index s 17.5 percent gain for the same time period. As oil and natural gas production continues to exceed estimates, it also continues to drive the need for changes in our nation s pipeline infrastructure. This is particularly true with respect to natural gas pipelines, which have insufficient takeaway capacity to support the current robust production out of the Marcellus shale. Midstream MLPs are continuing to respond to that need. Several new projects have come on line recently and additional projects are scheduled to begin operations later this year. In just the next three years through 2016, we project approximately $77 billion in MLP projects. Capital markets continued to underpin sector growth, with MLPs raising approximately $7.9 billion in equity and $4.9 billion in debt offerings during the third fiscal quarter. This infusion of capital brought the totals for equity and debt raised during the fiscal year to date to approximately $27.5 billion and $25.6 billion, respectively. There were seven new initial public offerings in the third quarter, with activity in each sector of the energy value chain, ranging from a bituminous thermal coal producer, to an owner and operator of petroleum terminals, to a petrochemical company. Merger and acquisition (M&A) activity was a key driver during the fiscal quarter, with approximately $12 billion in MLP transactions. One additional announced deal that affected MLPs was Kinder Morgan, Inc. (KMI) s proposed approximately $70 billion acquisition of three affiliates: Kinder Morgan Energy Partners, L.P. (KMP), Kinder Morgan Management, LLC (KMR) and El Paso Pipeline Partners, L.P. (EPB), consolidating four publicly traded pipeline companies into one entity, pending shareholder approval. This brings the total for all MLP and pipeline transactions to approximately $104 billion in announced deals thus far during the fiscal year, with nearly $27 billion in MLPs alone. Fund Performance Review The fund s total assets increased from approximately $2.3 billion on May 31, 2014, to $2.5 billion on Aug. 31, 2014, primarily from net realized and unrealized gains on investments. Leverage (including bank debt, senior notes and preferred stock) as a percent of total assets decreased slightly to end the quarter at 20.0 percent. At fiscal quarter end, the fund paid a distribution of $ per common share ($1.685 annualized) to stockholders, which is in line with last quarter s distribution and a 0.6 percent increase year over year. The distribution represented an annualized distribution rate of 5.7 percent based on the fund s fiscal quarter closing price of $ In managing the fund, Tortoise places particular emphasis on distribution coverage: distributable cash flow (DCF) earned by the fund divided by distributions paid to stockholders. Our goal is to declare what we believe to be sustainable quarterly distributions with increases safely covered by earned distributable cash flow. The distribution payout coverage was 97.8 percent for the fiscal quarter and percent for the last four quarters. For the third fiscal quarter, the fund s market-based total return was 5.9 percent and its NAV-based total return was 10.3 percent (14.0 percent and 22.2 percent, respectively, for the nine months ending Aug. 31, 2014), including the reinvestment of distributions. As such, the discount in the fund s stock price relative to its NAV widened during the period. Discounts have widened over the past several months across the broader closed-end fund market, including energy MLP closed-end funds. We believe this is due in part to concerns about rising interest rates. This more technical market pressure has occurred at the same time as the fund s strong NAV performance, magnifying the discount. We continue to believe in our investment focus on quality, sustainable distributions and growth. (Unaudited) rd Quarter Report 1

4 Key Quarterly Asset Performance Drivers A number of factors influenced the fund s asset performance during the fiscal quarter: l The fund s strategic focus in natural gas pipeline MLPs contributed the most to absolute performance, as they benefited from the increasing need for greater pipeline takeaway capacity. l Gathering and processing pipeline MLPs helped absolute results, as their performance benefited from increased transportation of natural gas liquids (NGLs) volumes. l The fund s stake in crude oil pipelines that benefited from increased production also helped performance. l As a result of the fund s midstream investment strategy, it was not exposed to upstream, propane and coal MLPs, which lagged during the quarter. This boosted the fund s relative results. l Proposed M&A activity in both the natural gas and gathering and processing pipeline space during the quarter, including Kinder Morgan, Inc. s proposed acquisition of Kinder Morgan Energy Partners, restrained results. The fund was underweight Kinder Morgan Energy Partners because of its limited distribution growth outlook, but the stock performed well in the period following the announcement of the proposed acquisition. Concluding Thoughts In our view, natural gas infrastructure MLPs will continue to benefit from the robust production out of premier North American shales, driving the need for significant infrastructure build-out. We believe that NTG offers stockholders a long-term investment opportunity with the potential for a high level of total return with sustainable distributions. Sincerely, The Managing Directors Tortoise Capital Advisors, L.L.C. The adviser to Tortoise MLP Fund, Inc. Additional information about the fund s financial performance, distributions and leverage is available in the Key Financial Data and Management s Discussion sections of this report. The Tortoise MLP Index is a float-adjusted, capitalization-weighted index of energy master limited partnerships (MLPs). The Tortoise Midstream MLP Index, a sub-index of the Tortoise MLP Index is comprised of all constituents included in the following sub sectors: Crude Oil Pipelines, Gathering & Processing, Natural Gas pipelines and Refined Products Pipelines. The Tortoise Upstream MLP Index is comprised of all constituents included in the Tortoise MLP Index s Coal and Oil & Gas Productions sub sector indices. The S&P 500 Index is an unmanaged market-value-weighted index of stocks, which is widely regarded as the standard for measuring large-cap U.S. stock market independence. Past performance is no guarantee of future results. (Unaudited) 2 Tortoise MLP Fund, Inc.

5 K e y F i n a n c i a l D a t a (Supplemental Unaudited Information) (dollar amounts in thousands unless otherwise indicated) The information presented below regarding Distributable Cash Flow and Selected Financial Information is supplemental non-gaap financial information, which we believe is meaningful to understanding our operating performance. The Distributable Cash Flow Ratios include the functional equivalent of EBITDA for non-investment companies, and we believe they are an important supplemental measure of performance and promote comparisons from period-to-period. This information is supplemental, is not inclusive of required financial disclosures (e.g. Total Expense Ratio), and should be read in conjunction with our full financial statements Q3 (1) Q4 (1) Q1 (1) Q2 (1) Q3 (1) Total Income from Investments Distributions from master limited partnerships $ 26,099 $ 27,397 $ 25,350 $ 27,013 $ 27,704 Dividends paid in stock 1,224 1,270 1, Other income 359 Total from investments 27,323 29,026 26,652 27,980 28,696 Operating Expenses Before Leverage Costs and Current Taxes Advisory fees, net of fees waived 3,860 3,807 3,978 4,516 5,018 Other operating expenses ,181 4,122 4,326 4,864 5,363 Distributable cash flow before leverage costs and current taxes 23,142 24,904 22,326 23,116 23,333 Leverage costs (2) 3,316 3,322 3,356 3,680 3,977 Current income tax expense (3) Distributable Cash Flow (4) $ 19,826 $ 21,582 $ 18,970 $ 19,436 $ 19,356 As a percent of average total assets (5) Total from investments 5.66 % 6.02 % 5.48 % 5.25 % 4.84 % Operating expenses before leverage costs and current taxes 0.87 % 0.86 % 0.89 % 0.91 % 0.90 % Distributable cash flow before leverage costs and current taxes 4.79 % 5.16 % 4.59 % 4.34 % 3.94 % As a percent of average net assets (5) Total from investments 8.21 % 8.91 % 8.30 % 8.10 % 7.69 % Operating expenses before leverage costs and current taxes 1.26 % 1.27 % 1.35 % 1.41 % 1.44 % Leverage costs and current taxes 1.00 % 1.02 % 1.05 % 1.07 % 1.07 % Distributable cash flow 5.95 % 6.62 % 5.90 % 5.62 % 5.18 % Selected Financial Information Distributions paid on common stock $ 19,653 $ 19,740 $ 19,799 $ 19,799 $ 19,799 Distributions paid on common stock per share Distribution coverage percentage for period (6) % % 95.8 % 98.2 % 97.8 % Net realized gain (loss), net of income taxes, for the period 5,325 8,154 (3,159) 7,781 20,965 Total assets, end of period 1,891,133 1,956,493 1,988,207 2,254,379 2,463,737 Average total assets during period (7) 1,914,383 1,933,455 1,973,730 2,113,784 2,353,728 Leverage (8) 345, , , , ,700 Leverage as a percent of total assets 18.2 % 19.0 % 19.2 % 21.8 % 20.0 % Net unrealized appreciation, end of period 374, , , , ,312 Net assets, end of period 1,287,655 1,315,866 1,308,440 1,415,146 1,538,456 Average net assets during period (9) 1,320,738 1,306,726 1,302,016 1,370,204 1,479,602 Net asset value per common share Market value per common share Shares outstanding (000 s) 46,932 47,000 47,000 47,000 47,000 (1) Q1 is the period from December through February. Q2 is the period from March through May. Q3 is the period from June through August. Q4 is the period from September through November. (2) Leverage costs include interest expense, distributions to preferred stockholders and other recurring leverage expenses. (3) Includes taxes paid on net investment income and foreign taxes, if any. Taxes related to realized gains are excluded from the calculation of Distributable Cash Flow ( DCF ). (4) Net investment loss, before income taxes on the Statement of Operations is adjusted as follows to reconcile to DCF: increased by the return of capital on distributions, the value of paid-in-kind distributions and amortization of debt issuance costs; and decreased by current taxes paid on net investment income. (5) Annualized for periods less than one full year. (6) Distributable Cash Flow divided by distributions paid. (7) Computed by averaging month-end values within each period. (8) Leverage consists of senior notes, preferred stock and outstanding borrowings under the revolving credit facility. (9) Computed by averaging daily net assets within each period rd Quarter Report 3

6 M a n a g e m e n t s D i s c u s s i o n (Unaudited) The information contained in this section should be read in conjunction with our Financial Statements and the Notes thereto. In addition, this report contains certain forward-looking statements. These statements include the plans and objectives of management for future operations and financial objectives and can be identified by the use of forward-looking terminology such as may, will, expect, intend, anticipate, estimate, or continue or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could cause actual results and conditions to differ materially from those projected in these forward-looking statements are set forth in the Risk Factors section of our public filings with the SEC. Overview Tortoise MLP Fund, Inc. s ( NTG ) primary investment objective is to provide a high level of total return with an emphasis on current distributions paid to stockholders. We seek to provide our stockholders with an efficient vehicle to invest in a portfolio consisting primarily of energy infrastructure master limited partnerships ( MLPs ) and their affiliates, with an emphasis on natural gas infrastructure. Energy infrastructure MLPs own and operate a network of pipeline and energyrelated logistical assets that transport, store, gather and process natural gas, natural gas liquids ( NGLs ), crude oil, refined petroleum products, and other resources or distribute, market, explore, develop or produce such commodities. Natural gas infrastructure MLPs are defined as companies engaged in such activities with over 50 percent of their revenue, cash flow or assets related to natural gas or NGL infrastructure assets. While we are a registered investment company under the Investment Company Act of 1940, as amended (the 1940 Act ), we are not a regulated investment company for federal tax purposes. Our distributions do not generate unrelated business taxable income ( UBTI ) and our stock may therefore be suitable for holding by pension funds, IRAs and mutual funds, as well as taxable accounts. We invest primarily in MLPs through private and public market purchases. MLPs are publicly traded partnerships whose equity interests are traded in the form of units on public exchanges, such as the NYSE or NASDAQ. Tortoise Capital Advisors, L.L.C. serves as our investment adviser. Company Update Total assets increased approximately $209 million during the 3rd quarter, primarily as a result of higher market values of our MLP investments. Distribution increases from our MLP investments were in-line with our expectations. Assetbased expenses increased from the previous quarter along with average managed assets. Leverage costs increased during the quarter due to the full impact of additional leverage issued during the 2nd quarter, while other operating expenses decreased slightly. Total leverage as a percent of total assets decreased from 2nd quarter 2014 and we maintained our quarterly distribution of $ per share. Additional information on these events and results of our operations are discussed in more detail below. Critical Accounting Policies The financial statements are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management s most difficult, complex, or subjective judgments. Our critical accounting policies are those applicable to the valuation of investments and certain revenue recognition matters as discussed in Note 2 in the Notes to Financial Statements. Determining Distributions to Stockholders Our portfolio generates cash flow from which we pay distributions to stockholders. Our Board of Directors has adopted a policy of declaring what it believes to be sustainable distributions. In determining distributions, our Board of Directors considers a number of current and anticipated factors, including, among others, distributable cash flow ( DCF ), realized and unrealized gains, leverage amounts and rates, current and deferred taxes payable, and potential volatility in returns from our investments and the overall market. While the Board considers many factors in determining distributions to stockholders, particular emphasis is given to DCF and distribution coverage. Distribution coverage is DCF divided by distributions paid to stockholders and is discussed in more detail below. Over the long-term, we expect to distribute substantially all of our DCF to holders of common stock. Our Board of Directors reviews the distribution rate quarterly and may adjust the quarterly distribution throughout the year. Determining DCF DCF is distributions received from investments, less expenses. The total distributions received from our investments include the amount we receive as cash distributions from MLPs, paid-in-kind distributions, and dividend and interest payments. The total expenses include current or anticipated operating expenses, leverage costs and current income taxes. Current income taxes include taxes paid on our net investment income in addition to foreign taxes, if any. Taxes incurred from realized gains on the sale of investments, expected tax benefits and deferred taxes are not included in DCF. The Key Financial Data table discloses the calculation of DCF and should be read in conjunction with this discussion. The difference between distributions received from investments in the DCF calculation and total investment income as reported in the Statement of Operations, is reconciled as follows: the Statement of Operations, in conformity with U.S. generally accepted accounting principles ( GAAP ), recognizes distribution income from MLPs and common stock on their ex-dates, whereas the DCF calculation may reflect distribution income on their pay dates; GAAP recognizes that a significant portion of the cash distributions received from MLPs are characterized as a return of capital and therefore excluded from investment income, whereas the DCF calculation includes the return of capital; and distributions received from investments in the DCF calculation include the value of dividends paid-in-kind (additional stock or MLP units), whereas such amounts are not included as income for GAAP purposes, 4 Tortoise MLP Fund, Inc.

7 M a n a g e m e n t s D i s c u s s i o n (Unaudited) (Continued) and includes distributions related to direct investments when the purchase price is reduced in lieu of receiving cash distributions. The treatment of expenses in the DCF calculation also differs from what is reported in the Statement of Operations. In addition to the total operating expenses, including fee waiver, as disclosed in the Statement of Operations, the DCF calculation reflects interest expense, distributions to preferred stockholders, other recurring leverage expenses, as well as taxes paid on net investment income. A reconciliation of Net Investment Loss, before Income Taxes to DCF is included below in Distributable Cash Flow. Distributions Received from Investments Our ability to generate cash is dependent on the ability of our portfolio of investments to generate cash flow from their operations. In order to maintain and grow distributions to our stockholders, we evaluate each holding based upon its contribution to our investment income, our expectation for its growth rate, and its risk relative to other potential investments. We concentrate on MLPs we believe can expect an increasing demand for services from economic and population growth. We seek well-managed businesses with hard assets and stable recurring revenue streams. Our focus remains primarily on investing in fee-based service providers that operate long-haul, interstate pipelines. We further diversify among issuers, geographies and energy commodities to seek a distribution payment which approximates an investment directly in energy infrastructure MLPs. In addition, many crude/refined products and natural gas liquids pipeline companies are regulated and currently benefit from a tariff inflation escalation index of PPI percent. Over the long-term, we believe MLPs distributions will outpace inflation and interest rate increases, and produce positive real returns. Total distributions received from our investments for the 3rd quarter 2014 were approximately $28.7 million, representing an increase of 5.0 percent as compared to 3rd quarter 2013 and an increase of 2.6 percent as compared to 2nd quarter On an annualized basis, total distributions for the quarter equate to 4.84 percent of our average total assets for the quarter. These changes reflect increases in per share distribution rates on our MLP investments and the impact of various portfolio trading activity. Expenses We incur two types of expenses: (1) operating expenses, consisting primarily of the advisory fee, and (2) leverage costs. On a percentage basis, operating expenses before leverage costs were an annualized 0.90 percent of average total assets for the 3rd quarter 2014, a decrease of 0.01 percent as compared to the 2nd quarter 2014 and an increase of 0.03 percent as compared to 3rd quarter Advisory fees for the 3rd quarter 2014 increased 11.1 percent from 2nd quarter 2014 as a result of increased average managed assets for the quarter. While the contractual advisory fee is 0.95 percent of average monthly managed assets, the Adviser waived an amount equal to 0.15 percent of average monthly managed assets from January 1, 2013 through December 31, 2013 and has agreed to waive an amount equal to 0.10 percent of average monthly managed assets during calendar year 2014 and an amount equal to 0.05 percent of average monthly managed assets during calendar year Leverage costs consist of two major components: (1) the direct interest expense on our senior notes and short-term credit facility, and (2) distributions to preferred stockholders. Other leverage expenses include rating agency fees and commitment fees. Total leverage costs for DCF purposes were approximately $4.0 million for the 3rd quarter 2014, an increase of 8.1 percent as compared to the 2nd quarter 2014 due to the full impact of additional leverage issued during the 2nd quarter. The weighted average annual rate of our leverage at August 31, 2014 was 3.17 percent including balances on our bank credit facility which accrue interest at a variable rate equal to one-month LIBOR plus percent. Our weighted average rate may vary in future periods as a result of changes in LIBOR, the utilization of our credit facility, and as our leverage matures or is redeemed. Additional information on our leverage is included in the Liquidity and Capital Resources discussion below. Distributable Cash Flow For 3rd quarter 2014, our DCF was approximately $19.4 million, a decrease of 2.4 percent as compared to 3rd quarter 2013 and a decrease of 0.4 percent as compared to 2nd quarter The changes are the net result of changes in distributions and expenses as outlined above. We paid a distribution of $19.8 million, or $ per share, during the quarter. This represents an increase of $ per share as compared to 3rd quarter 2013 and is unchanged from 2nd quarter Our distribution coverage ratio was 97.8 percent for 3rd quarter 2014, a decrease in the coverage ratio of 3.1 percent as compared to 3rd quarter 2013 and 0.4 percent as compared to 2nd quarter Our goal is to pay what we believe to be sustainable distributions with any increases safely covered by earned DCF. A distribution coverage ratio of greater than 100 percent provides flexibility for on-going management of the portfolio, changes in leverage costs, the impact of taxes from realized gains and other expenses. An on-going distribution coverage ratio of less than 100 percent will, over time, erode the earning power of a portfolio and may lead to lower distributions. Net investment loss before income taxes on the Statement of Operations is adjusted as follows to reconcile to DCF for 2014 YTD and 3rd quarter 2014 (in thousands): 2014 YTD 3rd Qtr 2014 Net Investment Loss, before Income Taxes $ (28,818) $ (9,228) Adjustments to reconcile to DCF: Dividends paid in stock 3, Distributions characterized as return of capital 83,044 27,499 Amortization of debt issuance costs DCF $ 57,762 $ 19, rd Quarter Report 5

8 M a n a g e m e n t s D i s c u s s i o n (Unaudited) (Continued) Liquidity and Capital Resources We had total assets of $2.46 billion at quarter-end. Our total assets reflect the value of our investments, which are itemized in the Schedule of Investments. It also reflects cash, interest and dividends receivable and any expenses that may have been prepaid. During 3rd quarter 2014, total assets increased by approximately $209 million. This change was primarily the result of an increase in the value of our investments as reflected by the change in net realized and unrealized gains on investments (excluding return of capital on distributions). Total leverage outstanding at August 31, 2014 was $491.7 million, an increase of $0.7 million as compared to May 31, Outstanding leverage is comprised of $313 million in senior notes, $90 million in preferred shares and $88.7 million outstanding under the credit facility, with approximately 68 percent of leverage with fixed rates and a weighted average maturity of 3.6 years. Total leverage represented 20.0 percent of total assets at August 31, 2014, as compared to 21.8 percent as of May 31, 2014 and 18.2 percent as of August 31, Our leverage as a percent of total assets remains below our long-term target level of 25 percent, allowing the opportunity to add leverage when compelling investment opportunities arise. Temporary increases to up to 30 percent of our total assets may be permitted, provided that such leverage is consistent with the limits set forth in the 1940 Act, and that such leverage is expected to be reduced over time in an orderly fashion to reach our long-term target. Our leverage ratio is impacted by increases or decreases in investment values, issuance of equity and/or the sale of securities where proceeds are used to reduce leverage. Our longer-term leverage (excluding our bank credit facility) of $403 million is comprised of 78 percent private placement debt and 22 percent private placement preferred equity with a weighted average rate of 3.58 percent and remaining weighted average laddered maturity of approximately 4.2 years. We use leverage to acquire MLPs consistent with our investment philosophy. The terms of our leverage are governed by regulatory and contractual asset coverage requirements that arise from the use of leverage. Additional information on our leverage and asset coverage requirements is discussed in Notes 8, 9 and 10 in the Notes to Financial Statements. Our coverage ratios are updated each week on our Web site at Subsequent to quarter-end, we issued $35,000,000 of Series K Notes which carry a floating interest rate based on three-month LIBOR plus 1.30 percent and mature on September 9, We used the proceeds to reduce the outstanding balance on our bank credit facility. Taxation of our Distributions and Income Taxes We invest in partnerships that generally have cash distributions in excess of their income for accounting and tax purposes. Accordingly, the distributions include a return of capital component for accounting and tax purposes. Distributions declared and paid by us in a year generally differ from taxable income for that year, as such distributions may include the distribution of current year taxable income or return of capital. The taxability of the distribution you receive depends on whether we have annual earnings and profits ( E&P ). E&P is primarily comprised of the taxable income from MLPs with certain specified adjustments as reported on annual K-1s, fund operating expenses and net realized gains. If we have E&P, it is first allocated to the preferred shares and then to the common shares. In the event we have E&P allocated to our common shares, all or a portion of our distribution will be taxable at the Qualified Dividend Income ( QDI ) rate, assuming various holding requirements are met by the stockholder. The QDI rate is variable based on the taxpayer s taxable income. The portion of our distribution that is taxable may vary for either of two reasons. First, the characterization of the distributions we receive from MLPs could change annually based upon the K-1 allocations and result in less return of capital and more in the form of income. Second, we could sell an MLP investment and realize a gain or loss at any time. It is for these reasons that we inform you of the tax treatment after the close of each year as the ultimate characterization of our distributions is undeterminable until the year is over. For tax purposes, distributions to common stockholders for the year ended 2013 were approximately 5 percent qualified dividend income and 95 percent return of capital. A holder of our common stock would reduce their cost basis for income tax purposes by the amount designated as return of capital. This information is reported to stockholders on Form 1099-DIV and is available on our Web site at For book purposes, the source of distributions to common stockholders for the year ended 2013 was 100 percent return of capital. We currently estimate that 50 to 70 percent of 2014 distributions will be characterized as qualified dividend income for tax purposes, with the remaining percentage, if any, characterized as return of capital. A final determination of the characterization will be made in January As of November 30, 2013, we had approximately $195 million in net operating losses. To the extent we have taxable income in the future that is not offset by net operating losses, we will owe federal and state income taxes. Tax payments can be funded from investment earnings, fund assets or borrowings. Details of our taxes are disclosed in Note 5 in our Notes to Financial Statements. The unrealized gain or loss we have in the portfolio is reflected in the Statement of Assets and Liabilities. At August 31, 2014, our investments are valued at approximately $2.462 billion, with an adjusted cost of $1.369 billion. The $1.093 billion difference reflects unrealized gain that would be realized for financial statement purposes if those investments were sold at those values. The Statement of Assets and Liabilities also reflects a net deferred tax liability primarily due to unrealized gains (losses) on investments. At August 31, 2014, the balance sheet reflects a net deferred tax liability of approximately $426.1 million or $9.07 per share. Accordingly, our net asset value per share represents the amount which would be available for distribution to stockholders after payment of taxes. 6 Tortoise MLP Fund, Inc.

9 S c h e d u l e o f I n v e s t m e n t s August 31, 2014 (Unaudited) Shares Fair Value Shares Fair Value Master Limited Partnerships and Related Companies 160.0% (1) Natural Gas/Natural Gas Liquids Pipelines 82.5% (1) United States 82.5% (1) Crestwood Midstream Partners LP 2,396,515 $ 55,982,590 El Paso Pipeline Partners, L.P. 982,843 40,846,955 Energy Transfer Partners, L.P. 3,322, ,877,223 Enterprise Products Partners L.P. 5,082, ,505,875 EQT Midstream Partners, L.P. 920,999 89,788,193 Kinder Morgan Energy Partners, L.P. 262,908 25,339,073 Kinder Morgan Management, LLC (2) 726,325 70,976,478 ONEOK Partners, L.P. 2,623, ,927,442 Regency Energy Partners LP 3,426, ,003,332 Spectra Energy Partners, LP 4,192, ,947,672 Williams Partners L.P. 1,519,094 80,527,173 1,268,722,006 Natural Gas Gathering/Processing 37.5% (1) United States 37.5% (1) Access Midstream Partners, L.P. 1,340,857 86,284,148 DCP Midstream Partners, LP 1,742,400 98,584,992 EnLink Midstream Partners, LP 1,644,609 50,966,433 MarkWest Energy Partners, L.P. 1,337, ,648,682 Summit Midstream Partners, LP 700,700 38,734,696 Targa Resources Partners LP 1,354, ,752,480 Western Gas Partners LP 1,224,200 94,863, ,834,689 Crude/Refined Products Pipelines 40.0% (1) United States 40.0% (1) Buckeye Partners, L.P. 1,400,367 $ 110,628,993 Enbridge Energy Partners, L.P. 1,438,700 52,253,584 Holly Energy Partners, L.P. 1,203,136 43,661,805 Magellan Midstream Partners, L.P. 999,000 83,846,070 MPLX LP 496,382 30,279,302 NuStar Energy L.P. 525,300 34,717,077 Phillips 66 Partners LP 301,600 22,318,400 Plains All American Pipeline, L.P. 2,019, ,051,169 Rose Rock Midstream Partners, L.P. 137,031 8,357,521 Sunoco Logistics Partners L.P. 1,256,412 62,167,266 Tesoro Logistics LP 498,200 35,013,496 Valero Energy Partners LP 220,382 11,748, ,043,247 Total Master Limited Partnerships and Related Companies (Cost $1,368,420,722) 2,461,599,942 Short-Term Investment 0.0% (1) United States Investment Company 0.0 (1) Fidelity Institutional Money Market Portfolio Class I, 0.05% (3) (Cost $116,689) 116, ,689 Total Investments (1) (Cost $1,368,537,411) 2,461,716,631 Other Assets and Liabilities (33.8%) (1) (520,260,671) Senior Notes (20.3%) (1) (313,000,000) Mandatory Redeemable Preferred Stock at Liquidation Value (5.9%) (1) (90,000,000) Total Net Assets Applicable to Common Stockholders 100.0% (1) $ 1,538,455,960 (1) Calculated as a percentage of net assets applicable to common stockholders. (2) Security distributions are paid-in-kind. (3) Rate indicated is the current yield as of August 31, See accompanying Notes to Financial Statements rd Quarter Report 7

10 S t a t e m e n t o f A s s e t s & L i a b i l i t i e s August 31, 2014 (Unaudited) Assets Investments at fair value (cost $1,368,537,411) $ 2,461,716,631 Receivable for Adviser fee waiver 400,980 Prepaid expenses and other assets 1,619,744 Total assets 2,463,737,355 Liabilities Cash overdraft 10,000 Payable to Adviser 3,809,309 Accrued directors fees and expenses 407 Accrued expenses and other liabilities 3,613,511 Deferred tax liability 426,148,168 Credit facility borrowings 88,700,000 Senior notes 313,000,000 Mandatory redeemable preferred stock ($25.00 liquidation value per share; 3,600,000 shares outstanding) 90,000,000 Total liabilities 925,281,395 Net assets applicable to common stockholders $ 1,538,455,960 Net Assets Applicable to Common Stockholders Consist of: Capital stock, $0.001 par value; 47,000,211 shares issued and outstanding (100,000,000 shares authorized) $ 47,000 Additional paid-in capital 817,459,968 Accumulated net investment loss, net of income taxes (74,815,722) Undistributed realized gain, net of income taxes 103,452,669 Net unrealized appreciation of investments, net of income taxes 692,312,045 Net assets applicable to common stockholders $ 1,538,455,960 Net Asset Value per common share outstanding (net assets applicable to common stock, divided by common shares outstanding) $ S t a t e m e n t o f O p e r a t i o n s Period from December 1, 2013 through August 31, 2014 (Unaudited) Investment Income Distributions from master limited partnerships $ 80,066,444 Less return of capital on distributions (83,043,878) Net distributions from master limited partnerships (2,977,434) Dividends from money market mutual funds 49 Total Investment Loss (2,977,385) Operating Expenses Advisory fees 15,191,177 Administrator fees 361,750 Professional fees 147,269 Stockholder communication expenses 134,868 Directors fees 129,960 Custodian fees and expenses 67,566 Fund accounting fees 67,459 Registration fees 31,455 Franchise fees 15,869 Stock transfer agent fees 9,431 Other operating expenses 75,772 Total Operating Expenses 16,232,576 Leverage Expenses Interest expense 8,067,611 Distributions to mandatory redeemable preferred stockholders 2,802,751 Amortization of debt issuance costs 275,077 Other leverage expenses 142,297 Total Leverage Expenses 11,287,736 Total Expenses 27,520,312 Less fees waived by Adviser (1,679,400) Net Expenses 25,840,912 Net Investment Loss, before Income Taxes (28,818,297) Deferred tax benefit 9,534,255 Net Investment Loss (19,284,042) Realized and Unrealized Gain on Investments Net realized gain on investments, before income taxes 40,507,030 Deferred tax expense (14,919,914) Net realized gain on investments 25,587,116 Net unrealized appreciation of investments, before income taxes 436,435,561 Deferred tax expense (160,751,872) Net unrealized appreciation of investments 275,683,689 Net Realized and Unrealized Gain on Investments 301,270,805 Net Increase in Net Assets Applicable to Common Stockholders Resulting from Operations $ 281,986,763 See accompanying Notes to Financial Statements. 8 Tortoise MLP Fund, Inc.

11 S t a t e m e n t o f C h a n g e s i n N e t A s s e t s Period from December 1, 2013 through Year Ended August 31, 2014 November 30, 2013 (Unaudited) Operations Net investment loss $ (19,284,042) $ (19,490,034) Net realized gain on investments 25,587,116 37,812,183 Net unrealized appreciation of investments 275,683, ,153,248 Net increase in net assets applicable to common stockholders resulting from operations 281,986, ,475,397 Distributions to Common Stockholders Return of capital (59,396,517) (78,345,962) Capital Stock Transactions Proceeds from shelf offerings of 223,888 common shares 6,364,992 Underwriting discounts and offering expenses associated with the issuance of common stock (103,845) Issuance of 216,490 common shares from reinvestment of distributions to stockholders 5,839,742 Net increase in net assets applicable to common stockholders from capital stock transactions 12,100,889 Total increase in net assets applicable to common stockholders 222,590, ,230,324 Net Assets Beginning of period 1,315,865,714 1,140,635,390 End of period $ 1,538,455,960 $ 1,315,865,714 Accumulated net investment loss, net of income taxes, end of period $ (74,815,722 ) $ (55,531,680 ) See accompanying Notes to Financial Statements rd Quarter Report 9

12 S t a t e m e n t o f C a s h F l o w s Period from December 1, 2013 through August 31, 2014 (Unaudited) Cash Flows From Operating Activities Distributions received from master limited partnerships $ 80,066,444 Dividend income received 45 Purchases of long-term investments (352,962,046) Proceeds from sales of long-term investments 238,941,223 Purchases of short-term investments, net (37,779) Interest expense paid (7,384,196) Distributions to mandatory redeemable preferred stockholders (2,802,751) Other leverage expenses paid (278,609) Operating expenses paid (13,817,123) Net cash used in operating activities (58,274,792) Cash Flows From Financing Activities Advances from revolving credit facility 315,000,000 Repayments on revolving credit facility (253,500,000) Issuance of senior notes 85,000,000 Maturity of senior notes (27,000,000) Common stock issuance costs (2,698) Debt issuance costs (68,597) Distributions paid to common stockholders (61,163,913) Net cash provided by financing activities 58,264,792 Net change in cash (10,000) Cash beginning of period Cash overdraft end of period $ (10,000) Reconciliation of net increase in net assets applicable to common stockholders resulting from operations to net cash used in operating activities Net increase in net assets applicable to common stockholders resulting from operations $ 281,986,763 Adjustments to reconcile net increase in net assets applicable to common stockholders resulting from operations to net cash used in operating activities: Purchases of long-term investments (352,340,971) Proceeds from sales of long-term investments 238,941,223 Purchases of short-term investments, net (37,779) Return of capital on distributions received 83,043,878 Deferred tax expense 166,137,531 Net unrealized appreciation of investments (436,435,561) Net realized gain on investments (40,507,030) Amortization of debt issuance costs 275,077 Changes in operating assets and liabilities: Increase in prepaid expenses and other assets (203,401) Decrease in payable for investments purchased (621,075) Increase in payable to Adviser, net of fee waiver 835,012 Increase in accrued expenses and other liabilities 651,541 Total adjustments (340,261,555) Net cash used in operating activities $ (58,274,792) See accompanying Notes to Financial Statements. 10 Tortoise MLP Fund, Inc.

13 F i n a n c i a l H i g h l i g h t s Period from Period from December 1, 2013 Year Ended Year Ended Year Ended July 30, 2010 (1) through November 30, November 30, November 30, through August 31, November 30, 2010 (Unaudited) Per Common Share Data (2) Net Asset Value, beginning of period $ $ $ $ $ Public offering price Income from Investment Operations Net investment loss (3) (0.41) (0.42) (0.40) (0.34) (0.04) Net realized and unrealized gain on investments (3) Total income from investment operations Distributions to Common Stockholders Return of capital (1.26) (1.67) (1.66) (1.64) (0.36) Capital stock transactions Underwriting discounts and offering costs on issuance of common stock (4) (1.18) Premiums less underwriting discounts and offering costs on issuance of common stock (5) Total capital stock transactions (1.18 ) Net Asset Value, end of period $ $ $ $ $ Per common share market value, end of period $ $ $ $ $ Total Investment Return Based on Market Value (6)(7) % % 7.14 % 9.88 % (2.02)% Supplemental Data and Ratios Net assets applicable to common stockholders, end of period (000 s) $ 1,538,456 $ 1,315,866 $ 1,140,635 $ 1,127,592 $ 1,131,120 Average net assets (000 s) $ 1,384,539 $ 1,274,638 $ 1,157,421 $ 1,140,951 $ 1,087,459 Ratio of Expenses to Average Net Assets (8) Advisory fees 1.46 % 1.38 % 1.34 % 1.30 % 1.07 % Other operating expenses Total operating expenses, before fee waiver Fee waiver (0.16) (0.23) (0.28) (0.32) (0.28) Total operating expenses Leverage expenses Income tax expense (9) Total expenses % % 6.22 % 5.44 % % See accompanying Notes to Financial Statements rd Quarter Report 11

14 F i n a n c i a l H i g h l i g h t s (Continued) Period from Period from December 1, 2013 Year Ended Year Ended Year Ended July 30, 2010 (1) through November 30, November 30, November 30, through August 31, November 30, 2010 (Unaudited) Ratio of net investment loss to average net assets before fee waiver (8) (2.02)% (1.76)% (1.88)% (1.69)% (0.79)% Ratio of net investment loss to average net assets after fee waiver (8) (1.86)% (1.53)% (1.60)% (1.37)% (0.51)% Portfolio turnover rate (6) % % % % 1.24 % Credit facility borrowings, end of period (000 s) $ 88,700 $ 27,200 $ 23,900 $ 10,100 $ 30,700 Senior notes, end of period (000 s) $ 313,000 $ 255,000 $ 255,000 $ 255,000 $ 230,000 Preferred stock, end of period (000 s) $ 90,000 $ 90,000 $ 90,000 $ 90,000 $ 90,000 Per common share amount of senior notes outstanding, end of period $ 6.66 $ 5.43 $ 5.48 $ 5.55 $ 5.07 Per common share amount of net assets, excluding senior notes, end of period $ $ $ $ $ Asset coverage, per $1,000 of principal amount of senior notes and credit facility borrowings (10) $ 5,054 $ 5,982 $ 5,412 $ 5,593 $ 5,684 Asset coverage ratio of senior notes and credit facility borrowings (10) 505 % 598 % 541 % 559 % 568 % Asset coverage, per $25 liquidation value per share of mandatory redeemable preferred stock (11) $ 103 $ 113 $ 102 $ 104 $ 106 Asset coverage ratio of preferred stock (11) 413 % 454 % 409 % 418 % 423 % (1) Commencement of Operations. (2) Information presented relates to a share of common stock outstanding for the entire period. (3) The per common share data for the years ended November 30, 2013, 2012 and 2011 and the period from July 30, 2010 through November 30, 2010 do not reflect the change in estimate of investment income and return of capital. See Note 2C to the financial statements for further disclosure. (4) Represents the dilution per common share from underwriting and other offering costs for the period from July 30, 2010 through November 30, (5) Represents the premiums on the shelf offerings of less than $0.01 per share, less the underwriter discount and offering costs of less than $0.01 per share for the years ended November 30, 2013 and Amount is less than $0.01 for the years ended November 30, 2013 and (6) Not annualized for periods less than one full year. (7) Total investment return is calculated assuming a purchase of common stock at the beginning of the period (or initial public offering price) and a sale at the closing price on the last day of the period reported (excluding brokerage commissions). This calculation also assumes reinvestment of distributions at actual prices pursuant to the Company s dividend reinvestment plan. (8) Annualized for periods less than one full year. (9) For the period from December 1, 2013 through August 31, 2014, the Company accrued $166,137,531 for net deferred income tax expense. For the year ended November 30, 2013, the Company accrued $141,332,523 for net deferred income tax expense. For the year ended November 30, 2012, the Company accrued $44,677,351 for net deferred income tax expense. For the year ended November 30, 2011, the Company accrued $20,589 for current income tax benefit and $35,466,770 for net deferred income tax expense. For the period from July 30, 2010 to November 30, 2010, the Company accrued $50,000 for current income tax expense and $38,533,993 for net deferred income tax expense. (10) Represents value of total assets less all liabilities and indebtedness not represented by senior notes, credit facility borrowings and preferred stock at the end of the period divided by senior notes and credit facility borrowings outstanding at the end of the period. (11) Represents value of total assets less all liabilities and indebtedness not represented by senior notes, credit facility borrowings and preferred stock at the end of the period divided by the sum of senior notes, credit facility borrowings and preferred stock outstanding at the end of the period. See accompanying Notes to Financial Statements. 12 Tortoise MLP Fund, Inc.